May 14 (Westlaw Journals) - Policyholders are entitled to a choice-of-law analysis in determining whether insurance law in New York or in the policyholder’s home state applies to their claims in an insurer’s billion-dollar insolvency, the state’s highest court has ruled.

The Court of Appeals’ unanimous decision is a setback for the insolvent insurance company’s reinsurers, which sought the exclusive application of New York insurance law and stand to lose billions of dollars in policyholder payouts.

Writing for the high court, Justice Carmen Ciparick said Midland Insurance Co.’s liquidator must conduct a “center of gravity” or “grouping of contacts” analysis to determine which state law applies to each policyholder’s insurance contract.

Only after the liquidator interprets each policy under the proper state law can he decide which policyholders have valid claims in the insolvency proceeding, the opinion said.

According to the opinion, Manhattan-based Midland sold multi-line insurance products and issued excess liability policies to Fortune 500 companies nationwide.  A judicial order put Midland into insolvency April 3, 1986.  At the time, the insurer had $307 million in assets and $354 million in liabilities.

Nearly 20 years later, the liquidator notified the plaintiffs in this action (Midland’s major corporate policyholders) that he had disallowed many of their claims.

As the administrator of Midland’s estate, he determined the policyholders’ claims for asbestos, product liability and other toxic torts were excluded under New York insurance law, the opinion said.

(Reporting by Melissa Sachs, Westlaw Journal Insurance Coverage)